The nature of bank notes is not often discussed and it plays an increasingly limited role in financial transactions. In the hope of avoiding a revised valued-added tax assessment, a litigant made some imaginative submissions about the nature of bank notes in Master Currency v CSARS.
The business of the litigant sold foreign currency in the duty free area of an airport and did not charge VAT. The court rejected the argument that foreign bank notes are movable property that contains a promise to pay by the issuing bank, with the rights being situated at their place of issue (in the foreign country).
The words on paper money “I will pay the bearer on demand” do not alter the character of money and turn it into some instrument or other document
The court looked at the history of money and central banking in relation to promises to pay the bearer that is contained in some bank notes. The words on paper money “I will pay the bearer on demand” do not alter the character of money and turn it into some instrument or other document. Despite these words on some bank notes, a bank note cannot be regarded as a promissory note embodying an incorporeal right against the issuing central bank.
Money is money. Bank notes, with or without a promise to pay the face value on demand, cannot be regarded as documents that embody incorporeal rights that may be situated in the case of foreign bank notes elsewhere. The transaction takes place where the money passes hands.